Debenture definitions
| Word backwards | erutnebed |
|---|---|
| Part of speech | The word "debenture" is a noun. |
| Syllabic division | de-ben-ture |
| Plural | The plural of debenture is debentures. |
| Total letters | 9 |
| Vogais (2) | e,u |
| Consonants (5) | d,b,n,t,r |
When a company needs to raise capital, one common way to do so is by issuing debentures. Debentures are long-term debt instruments used by companies to borrow money from investors. These instruments are unsecured, meaning they are not backed by any collateral. Instead, debenture holders rely on the company's creditworthiness to receive their interest payments and repay the principal amount.
Types of Debentures
There are several types of debentures, including convertible debentures, non-convertible debentures, secured debentures, and unsecured debentures. Convertible debentures can be converted into equity shares at a later date, while non-convertible debentures cannot. Secured debentures are backed by assets of the company, providing some security to debenture holders, while unsecured debentures do not have any collateral backing.
Benefits of Debentures
One key benefit of debentures is that they allow companies to raise long-term funds without diluting ownership. Unlike issuing equity shares, which involves giving up a stake in the company, debentures allow companies to retain full ownership while still accessing the capital they need. Additionally, the interest payments made to debenture holders are tax-deductible for the company, making this form of financing cost-effective.
Risks of Debentures
However, there are risks associated with investing in debentures. Since debentures are unsecured, holders face a higher risk of default compared to secured debt instruments. If the company faces financial difficulties and is unable to make interest payments or repay the principal amount, debenture holders may lose their investment. Additionally, debentures are subject to interest rate risk, as changes in interest rates can affect the value of these instruments.
Overall, debentures play a crucial role in corporate finance by providing companies with a flexible way to raise funds while offering investors a fixed income opportunity. Understanding the types, benefits, and risks of debentures is essential for both companies looking to raise capital and investors considering debenture investments.
Debenture Examples
- The company issued a debenture to raise capital for expansion.
- Investors purchased corporate debentures to diversify their portfolios.
- The debenture holder is entitled to receive fixed interest payments.
- A debenture is a type of unsecured bond issued by corporations or governments.
- The debenture agreement outlined the terms and conditions of the loan.
- She decided to invest in debentures because of their lower risk compared to stocks.
- The company defaulted on its debenture payments, resulting in legal action by investors.
- The debenture's maturity date is approaching, and investors will be repaid soon.
- He used his debenture as collateral to secure a loan for his business.
- The debenture trustee ensures that all obligations to debenture holders are met.